Profitable creativity and economic adaptability

Profitable creativity is an essential condition for economic adaptability. To be able to adapt, an economy must accept the financial profitability that goes hand in hand with creative and entrepreneurial success. Above all, it must avoid defensive reflexes that result in economic rigidity, which stifles innovation.

In the economic world, creativity is closely linked to the psychology of growth: “more” is better than “less”, at least in terms of revenues, sales and profits. The word ‘creativity’ also brings to mind Joseph Schumpeter’screative destruction, a veritable source of economic momentum and progress: innovative companies boost market share as well as profit margins, which triggers imitation and an upturn in activity in general. Creativity is what drives researchers to push back the limits of science and inspires businessmen fascinated by innovation. What motivates them? In their book “Abundance: the future is better than you think”, Peter Diamandis and Steven Kotler describe the four motivators of innovation: curiosity, the desire to create wealth, the desire for significance and… fear.

This fourth motivator illustrates that creativity and innovation are absolute concepts as well as relative ones. When one of our competitors proves to be more innovative than we are, then creative destruction risks killing us off economically. In absolute terms, creativity enables society to meet new challenges such as an ageing population, climate change and energy needs, among others. Independently of these motivating factors, creativity is a driving force for vibrant economic momentum.

As important as it may be, creativity cannot be dictated but needs incentives: academic or scientific recognition, benchmarks of success such as the adoption of new technology, and financial incentives. These incentives provide compensation, sometimes in a non-financial manner, for the efforts that were made and for the risks that were often run: financial risks, career risks. For the businessman, financial compensation is non-linear. In case of success, the financial windfall reflects the very narrow chances of success: many try, but few succeed. This is why it is so important to celebrate success rather than to stigmatise failure.

We call internal creativity the capacity to adapt to new circumstances or to create a new environment (such as technological innovation). External creativity, in contrast, is seen as a threat that exposes us to the consequences of our competitors’ innovation (i.e. creative destruction). Faced with this threat, companies, regions and even countries are forced to react. At the macroeconomic level, we must deal with higher unemployment in sectors hit by major technological advances. In cutting-edge sectors, labour shortages often occur, which can drive up wages. Major intra and inter-sector divergences can arise. External creativity, or the creativity of others, requires redeployment efforts, training and investment in research and development.

The response to external creativity will lack flexibility if the focus is on the adjustment costs implicated by the need to adapt. Adaptation comes with definite and immediate costs, while creativity gains are uncertain and might take a long time to come to light. As a result, there is a tendency to adopt a defensive reflex: to protect the existing in order to avoid adjustment costs and to reduce uncertainty, at least in the short term. This creates opposing forces between creativity and the need to adapt on the one hand and the desire to maintain the status quo on the other: just when flexibility is needed, we opt for rigidity instead.

The economic cost of rigidity can be very high. It can have a negative impact on price competitiveness since our productivity gains are not as big as those of our competitors, and unit wage costs rise relative to our rivals. Competitiveness can also deteriorate due to outmoded products or production processes. At the macroeconomic level, it can have a negative impact on growth, public finances and investment. It can even have an impact on inequality if, lacking sufficient financial resources, education fails to play its role as social elevator. All these factors hamper an economy’s innovation capacity, and risk creating a vicious circle.